Correlation Between Dongbu Steel and Shin Steel

Can any of the company-specific risk be diversified away by investing in both Dongbu Steel and Shin Steel at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Dongbu Steel and Shin Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dongbu Steel Co and Shin Steel Co, you can compare the effects of market volatilities on Dongbu Steel and Shin Steel and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Dongbu Steel with a short position of Shin Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dongbu Steel and Shin Steel.

Diversification Opportunities for Dongbu Steel and Shin Steel

0.59

Correlation Coefficient

Dongbu Steel  Shin Steel

Very weak diversification

The 3 months correlation between Dongbu and Shin is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Dongbu Steel Co and Shin Steel Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shin Steel and Dongbu Steel is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Dongbu Steel Co are associated (or correlated) with Shin Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shin Steel has no effect on the direction of Dongbu Steel i.e., Dongbu Steel and Shin Steel go up and down completely randomly.

Pair Corralation between Dongbu Steel and Shin Steel

Assuming the 90 days trading horizon Dongbu Steel Co is expected to generate 0.86 times more return on investment than Shin Steel. However, Dongbu Steel Co is 1.17 times less risky than Shin Steel. It trades about -0.02 of its potential returns per unit of risk. Shin Steel Co is currently generating about -0.04 per unit of risk. If you would invest  624,000  in Dongbu Steel Co on September 12, 2024 and sell it today you would lose (32,000) from holding Dongbu Steel Co or give up 5.13% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.31%
Values	Daily Returns

Dongbu Steel Co  vs.  Shin Steel Co

Dongbu Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dongbu Steel Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Dongbu Steel is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shin Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shin Steel Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Dongbu Steel and Shin Steel

The main advantage of trading using opposite Dongbu Steel and Shin Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dongbu Steel position performs unexpectedly, Shin Steel can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Shin Steel will offset losses from the drop in Shin Steel's long position.

The idea behind Dongbu Steel Co and Shin Steel Co pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.